Nigeria’s biggest firms face naira devaluation crunch

Nigeria’s biggest firms are walking a tightrope as a surge in foreign exchange losses has squeezed profit margins for a sector looking to recover from the economic effect of the Russia/ Ukraine war.

About two weeks after President Bola Tinubu promised to unify the nation’s multiple exchange rates, the apex bank decided to float the naira at the Investors’ and Exporters’ Window of the foreign exchange market. Since then, the naira has fallen from N471/dollar to N870/dollar.

As a result of the above development, Nigerian Breweries reported a net loss on foreign exchange of N70.6 billion in the second quarter of 2023 taking the year-to-date exchange rate loss to N85.2 billion.

Further findings showed although the FX losses did not impact cash as the company still has a healthy cash balance of N34.9 billion; however, the losses contributed to a N47.7 billion reduction in net assets.

Airtel Africa plc also reported that it lost $151m due to the harmonisation of foreign exchange rates in Nigeria.

The telecom company said, “Profit after tax was negative ($151m), driven largely by a foreign exchange loss of $471m recorded in finance cost before tax and $317m after tax, because of the devaluation of the Nigerian naira in the month of June 2023. This impact has been classified as a non-operating exceptional item.”

In the accompanying notes to the financial statement, Airtel’s chief executive officer of Airtel said, “This quarter saw the announcement of the change to the FX market in Nigeria which resulted in significant naira devaluation.”

“We have welcomed this reform as very positive for the medium and long-term development of our business in Nigeria, our largest market,” Ogunsanya said.

Guinness Nigeria Plc incurred N49 billion in exchange rate losses, according to the information contained in its full-year results for the period ending June 2023. Further findings showed the forex depreciation led the company to a loss of N18.1 billion, its first full-year loss since 2020 when Covid-19 ravaged company financials.

Seplat Energy reported a 51.7 percent decline in operating profit to $118.4 million in six months of 2023 from $245.3 million in six months of 2022.

“This decline in operating profit was attributed to a combination of lower oil prices and foreign exchange (FX) losses due to changes in exchange rates,” Seplat Energy said.

According to Seplat Energy, the revaluation of financial assets arising from exchange rate devaluation resulted in a net (non-cash) loss of $33.8 million.

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Revaluation loss of Unilever, one of Nigeria’s biggest manufacturing goods firms rose to N14.36 billion from N1.06 billion, while restructuring cost increased to N2.36 billion from N0.48 billion in the first half of 2022.

Unilever stated that the revaluation loss arose from foreign currency-denominated balances related to trade loans.

Additionally, the consumer goods firm noted that the restructuring cost included the write-off of raw and packaging materials due to the halt in production in the home care category and associated redundancy expenses.

“Revaluation loss arising from foreign currencies denominated balances in respect of trade loan. Included in the restructuring cost are raw and packaging materials written off due to the stoppage of production in the home care category and associated redundancy cost,” the company said.

Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said naira devaluation has been a perennial problem for companies that are highly import-dependent.

“The multinationals that are dependent on imported raw materials will be most affected by the naira devaluation, which has been a problem for companies that are highly import-dependent,” Yusuf said.

Analysts at CSL Stockbrokers Limited said the unification of the exchange rate will increase the cost of production for companies that import raw materials and that they will be forced to pass on the increase to the final consumer.

They said: “Importers of eligible items at the I&E window will now have to source FX at a higher rate and will likely push the associated increased costs to the end consumers resulting in an increase in the price of goods and services, especially imported goods.

“Consumers still processing the impact of the removal of fuel subsidies will now have to deal with an additional increase in prices of goods and services associated with a depreciation of the currency. Empirical evidence shows a strong pass-through effect of changes in the exchange rate on consumer prices.”